BSP relief to cushion bad loans, says S&P

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April 18, 2026 | 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP)’s latest relief measures for borrowers amid the energy emergency could help keep bad loans in check, but may come at the cost of weaker bank earnings, according to S&P Global Ratings.

In a report, the debt watcher noted that the central bank has temporarily suspended loan repayments for borrowers affected by higher energy prices and supply-chain disruptions.

“We believe the move may undermine bank profitability as net interest margins peak and credit losses remain elevated. But it could avoid a spike in non-performing loans (NPLs),” S&P said.

The BSP earlier allowed banks to grant up to six months of payment grace periods for affected borrowers and up to one year for agricultural loans, alongside the temporary exclusion of these loans from past due and NPL classifications.

S&P said these measures, which will be available until March 24, 2027, could provide relief to borrowers struggling with higher fuel costs and supply disruptions linked to the Middle East conflict.

“Under our base case, NPLs should remain contained as the country navigates a state of emergency,” S&P said, noting that the policy response could help avoid a sudden spike in soured loans.

Still, the credit rater noted second-round risks to the Philippine economy, pointing out that the country may be more vulnerable than its regional peers.

“That’s because the Philippines is a net oil importer, especially from the Middle East, and it lacks fuel and electricity subsidies to vulnerable groups,” it said.

The report said that Philippine banks have limited direct exposure to sectors most affected by the conflict, including airlines, oil refining, chemicals and agriculture, with combined exposure accounting for less than five percent of total loans.

As a result, S&P said the overall impact of the BSP’s relief measures should remain manageable for the banking system.

However, risks could build if the geopolitical crisis drags on. The agency said smaller firms, mid-sized corporates and lower-income households may be more vulnerable to prolonged economic strain, particularly as higher energy prices feed into broader inflation pressures.

It added that unsecured consumer loans, which account for about 10 percent of total loans and have been a key growth driver in recent years, could contribute to rising NPLs under a downside scenario.

Despite these risks, S&P expects banks to remain resilient, supported by strong profitability and capital buffers built up in recent years.

Philippine banks posted return on assets of around 1.4 percent to 1.5 percent, backed by improving margins, although earnings could soften as loan repayment suspensions reduce interest income.

“Banks are well-placed to withstand shocks,” S&P said, citing adequate capitalization and liquidity, even as credit losses are projected to stay elevated at around one percent to 1.2 percent of total loans over the next two years.

The BSP’s relief measures also include encouraging banks to waive fees on digital transactions such as InstaPay and PESONet transfers, a move aimed at easing financial burdens on consumers during the crisis.

S&P said take-up of the relief program is likely to be more measured than during the pandemic, as the current framework is opt-in and targeted at borrowers most affected by the energy shock.